The global gold market recently experienced historic turbulence. After hitting a record high near $5,600 per ounce on January 29, London gold prices plummeted over 9% the following day, falling below the $5,000 mark. Last week, London spot gold closed at $4,880 per ounce (down 2.0% week-on-week), while domestic AU9999 gold finished at 1,164 yuan per gram (up 4.8% week-on-week).
This sharp correction stems from a combination of market fragility and external catalysts rather than a single negative factor.
The fundamental cause of this pullback is the previous trading overheating and crowding in gold markets. We had repeatedly warned that technical indicators were flashing extreme overbought signals, with gold option implied volatility reaching historical extremes - signaling potential amplified volatility and vulnerability to sudden selloffs. Recent margin requirement hikes by domestic and international exchanges clearly aimed to cool the market.
The immediate trigger was policy uncertainty following the Federal Reserve chair nomination. Last Friday's formal nomination of Kevin Warsh as next Fed chair, despite his complex stance (supporting rate cuts while advocating significant balance sheet reduction), was immediately interpreted as hawkish. This nomination fueled expectations of a more disciplined policy path, easing concerns about Fed independence and undermining one core driver of gold's rally - expectations for persistent liquidity expansion and uncontrolled inflation. Markets fear the combination of "rate cuts + balance sheet reduction" could tighten dollar liquidity, pressuring dollar-denominated gold.
However, Warsh's policy stance transcends simple hawk/dove labels. His hawkishness manifests in inflation toughness and balance sheet vigilance; his dovishness appears in current rate cut support. The seemingly contradictory "rate cuts + balance sheet reduction" approach logic lies in addressing the constraint of the Fed's oversized balance sheet on rate cut space and long-term yields. Thus, his balance sheet reduction aims not at tightening but creating room for rate cuts by absorbing excess liquidity and stabilizing inflation expectations to lower long-term rates and term premiums. This "tighten money first, then cut rates" approach seeks to restore Fed independence from fiscal financing pressures.
Yet implementation remains questionable given high U.S. debt burdens and potential political interference. Markets may overemphasize hawkish aspects while underestimating dovish possibilities under political pressure.
Meanwhile, geopolitical risks subtly influence market sentiment. Last week saw escalated U.S.-Iran tensions with heated rhetoric, U.S. carrier deployments, and Iranian military exercises raising war risk premiums, while backchannel contacts slightly eased immediate escalation concerns.
Looking ahead, last week's plunge represents short-term technical adjustment and sentiment release rather than trend reversal. Markets transitioned from unilateral rises to volatile tug-of-war phases requiring volatility management.
Medium-to-long-term structural gold supports remain intact: central bank gold demand amid de-dollarization, dollar credibility erosion from U.S. fiscal dominance, and systemic risks from geopolitical fragmentation. Gold's hedge value against "international disorder" and "sovereign currency risks" will reemerge once volatility subsides.
Key signals for gold ETFs (518880) this week: (1) U.S. January employment data; (2) geopolitical developments.
Comparison of RMB-denominated gold versus international gold performance: Data source: Wind, HuaAn Fund,截至2026/2/1
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